Lehman Brothers and the Weakness of the Giant
Sept. 15 marked two years since Lehman Brothers, the fourth largest investment bank in the world and a symbol of Wall Street, filed for bankruptcy. It shook global finance and gave rise to the most acute crisis since the Great Depression.
When Lehman Brothers stopped payments, it had debt in the order of $613 billion, of which about $160 billion were from bonds held by investors around the world, including European and Asian pension funds that had placed their trust in the vision of the risk rating agencies.
The value of the bonds registered a sharp drop, settling at under 15 cents on the dollar. Losses soared, and depositors withdrew $400 billion from money market funds. One of the most important funds, the Reserve Money Market Fund, announced that it was unable to return deposits because of losses on transactions with Lehman.
However, the main fears of the analysts did not materialize. The Great Depression did not return, globalization continued its march and the leading economies are beginning to leave the recession behind. But the real importance of the crisis triggered by Lehman is that it revealed the loss of U.S. power in the global economic puzzle.
The conventional view was that the world would fall into a deep recession in the wake of the problems in the United States. But China emerged forcefully, demonstrating that its rise as a new power is not a distant possibility; it is happening now.
Gideon Rachman, of the Financial Times, believes that it was Sept. 15, 2008, that marked the end of the unipolar moment — not the events caused by the terrorist attack on New York and Washington D.C. on September 11, 2001.
If this is indeed the century of the predominance of China in the global economic order, the fall of Lehman Brothers will be remembered as the event that bared this harsh reality.
When Lehman Brothers stopped payments, it had debt in the order of $613 billion, of which about $160 billion were from bonds held by investors around the world, including European and Asian pension funds that had placed their trust in the vision of the risk rating agencies.
The value of the bonds registered a sharp drop, settling at under 15 cents on the dollar. Losses soared, and depositors withdrew $400 billion from money market funds. One of the most important funds, the Reserve Money Market Fund, announced that it was unable to return deposits because of losses on transactions with Lehman.
However, the main fears of the analysts did not materialize. The Great Depression did not return, globalization continued its march and the leading economies are beginning to leave the recession behind. But the real importance of the crisis triggered by Lehman is that it revealed the loss of U.S. power in the global economic puzzle.
The conventional view was that the world would fall into a deep recession in the wake of the problems in the United States. But China emerged forcefully, demonstrating that its rise as a new power is not a distant possibility; it is happening now.
Gideon Rachman, of the Financial Times, believes that it was Sept. 15, 2008, that marked the end of the unipolar moment — not the events caused by the terrorist attack on New York and Washington D.C. on September 11, 2001.
If this is indeed the century of the predominance of China in the global economic order, the fall of Lehman Brothers will be remembered as the event that bared this harsh reality.